/// Why the Ipad Rules (and design has nothing to do with it)

February 28, 2011  |  Blog

For years technology companies have been able to count on beating Apple in at least one area – pricing.  From the computer to the iPod and the iPhone, other companies have been able to produce and sell products in the same category for much less.  Toshiba and HP, for example, have consistently sold computers with similar specs (albeit with a different operating system) for hundreds less than Apple.  However, as Jason Hiner of techrepublic.com points out, that advantage may come to an end with Apple’s pricing of the iPad which, so far, is the least expensive tablet on the market.

There are two main reasons for this.  The first reason is Apple’s ability to sell its products directly to consumers through its Apple Stores and its website while other manufacturers are forced to sell their products almost exclusively through retail partners.  This difference is significant because retail partners take a significant slice of a product’s profits, often buying a product for 50% of the retail price.  For the Motorola Xoom tablet, that would mean a $300 wholesale price for the $600 Xoom version.  According to one estimate, that Xoom version costs $214.57 to produce, leaving Motorola with an $85 profit when the product is sold in retail stores.  On the other hand, the $500 iPad costs around $229 to produce, leaving Apple with a whopping $270 profit (without accounting for other expenses) when sold directly through an Apple store.  Competitors simply do not have the same option for direct sales, so they have to settle for smaller profit margins.

The second reason is that Apple is apparently able to command much higher wholesale prices from its retail partners based on its products’ popularity.  According to one of Hiner’s unnamed sources, Apple sells the iPad to retailers at a tiny 3% discount.  If this is true, Apple is also making huge profits going the traditional retail route.

This begs the question:  If competitors are going to lose the price battle with the iPad, do they have any chance of successfully competing based on specs and features?

Leave a Reply

You must be logged in to post a comment.